Banking and Financial Services industry is undergoing a massive change. A change that is far reaching in many aspects. A change that has the potential to shake the very foundations on which they had been built and operating so far. And it is mostly due to the emergence of changed consumer expectations driven by technology and a lot because of their nonchalant attitude of these institutions towards customers at large. Below are the five defining trends (in no particular order) which might have a resounding impact on Banking & Financial Services in the year 2016 and beyond
#1 - Tech Innovation Would Move Beyond Retail Customers
During the past couple of years and even now, the focus of the banks were on retail customers. Digital banking is still being attributed pretty much to the end customer and his experience. Banks had spent a ton of money and resources on innovation focused on this area. However, in the coming years, the focus would be more on the commercial/wholesale customers. There is a sense of discomfort with the corporate customers that they are being pushed to the bottom of the pyramid on innovation despite being up on the volume of business they conduct. Banks such as the US Bankcorp have already fired their first shot. US Bank launched a mobile payment app last month for its general aviation customers, which allows private and business pilots to pay for fueling and other services directly from their phone. Efforts are on to make the commercial product line similar to the consumer apps/products. Citigroup for one is having its commercial innovation team work with their consumer counterparts to improve the UI/UX for the commercial apps.
#2 - Neo-Banks Would Turn into Full Fledged Digital Challenger Banks
Last year, venture capitalists had poured around US$250 million on Neo-Banks with a focus on improving the consumer banking experience and providing digital services. Neo-Banks such as Moven, Number26 etc. who have been the beneficiaries are now turning up to be the Digital Challenger Banks by converting themselves into full-fledged banks. The impact is high in UK and could possibly impact the rest of the world. In UK, the regulators have already approved licenses for several startup banks like Fidor, Tandem, Mondo. Agile processes combined with cutting edge technology would make these banks a premier choice for millennials to bank with.
#3 - Internet of Things Comes to Banking
Internet of Things (IoT is being talked about the most in 2015. Advent of wearables, connected devices, smart meters etc. has already begun the data deluge. However, banking was not an area which was high on the impact list. But that state would be changed soon. Neo-digital Bank Moven had recently showcased its integration with Amazon Echo.
Check out this cool video demonstration below from none other than Brett King, CEO of Moven. Click here to view video
#4 - Get Ready for the Blockchain Tsunami
Blockchain technology has been the toast of the Banking and Financial Services of late. While they were weary of the bitcoin technology but to everyone's surprise they were willing to embrace the underlying ledger framework aka Blockchain with open arms. At the recent, SIBOS Singapore, several banking executives had confirmed that they are working or have been keenly looking at Blockchain. Click here to view image
Applicability and the utilization of the Blockchain technology is beyond the Banking and Financial Services areas which has led to formation of several consortiums like R3 and the latest Open Ledger initiative led by the Linux Foundation.
Magister Advisors recent study observes that Banks would be spending on top of US$1 million in 2017 on Blockchain technology. Right now the focus is mostly on conducting Proof of Concept (PoC), however, the year 2016 would be Blockchain's 'race to production' and move beyond the prototype stage. Few early adaptors like Goldman Sachs, Overstock have already production instances of Blockchain for specific use cases.
If you haven't looked at Blockchain yet, I'd recommend to take a look at the below links which would well serve as a primer on Blockchain.
- What is a Blockchain?
- 10 things you should know about Blockchain
- Everything you need to know about Bitcoin & Blockchain
#5 - Rise of the Algorithms - AI & Cognitive Computing
In order to cut cost and increase the operational efficiencies Banks have been resorting to massive adoption of simplification and AI/Cognitive technologies. The regulatory pressures has increased the cost of operations and has taken a toll on the operating margins of the Banks. The threat from Neo-Banks, FinTech hasn't done any favor either.
Most of the Back Office Processing (KYC, Client On-boarding/Screening), Investment Advisory Services (Robo Advisors), Tech/First Line Customer Support is expected to be automated to a greater extent to ensure that significant cost reduction is achieved. Sensing this trend major IT System Integrators have either started to develop such offerings or have resorted to acquisitions and mergers to acquire the required skills to service their Banking customers.
The impact is so high that the ex-CEO of Barclays Anthony Jenkins commented that the Uber Moment for the Banks has arrived. In a recent study conducted by Financial Times, it was found that 100,000 Bankers have lost their jobs this year which is equivalent to the 10% of combined strength of 11 large European and US Banks put together. The trend is expected to continue and it’s being predicted that the half of the Banking jobs would be taken over by the APIs, apps and algorithms in next ten years.
Other Trends worth a Look
- Big Data based Advanced Analytics and Data Science continues to grow
- Disruption by FinTechs would prevail
- Everything P2P will continue to challenge the traditional Banking model
- Inward looking initiatives by Banks through Hackathons and incubators for FinTech Startups
- Bank of the Future
- Wearables and Virtual Reality based Banking
How many such trends have you already observed and are already experiencing? Please post your thoughts and views as comments below.